How to Handle Expenses Paid with Personal Funds

This is one of those tricky situations that small business owners run into frequently that's difficult to handle the right way without a bookkeeper's expertise. Instead of shrugging it off, read on to learn exactly what to do to capture those expenses paid with personal funds in Quickbooks.

BOOKKEEPING

5/16/20262 min read

a man sitting at a desk with his head in his hands

The Problem

When you go to enter an expense into Quickbooks Online, you're required to select the bank or credit card that was used for the purchase. This is great if it was your business account or credit card, but what if you accidentally used your personal credit card? Or if your business is on the newer side, you might have expenses you incurred before you opened a business checking account.

You can't just select an account that wasn't used because it will throw off the balance of that account. You also don't want to link a personal account to Quickbooks because you'll end up bringing in a lot of transactions that you don't want in there and it will add this personal account to your balance sheet. So what do we do?

The Solution

There are two ways to handle this. You could either create a journal entry or a zero sum expense. A journal entry is fine for occasional slip ups here and there, but if you have a lot of expenses to enter, your best bet is the zero sum expense. Here are the steps for both methods:

Journal Entry

On the left hand side menu, go to create and select journal entry under other.
Make the date match the date of the purchase.
In the journal no., enter the description of the purchase.
For the first line, select which account the purchase falls under (gas, insurance, supplies, etc.) and put the amount of the purchase in the debit column. Add a description if you'd like.
For the second line, select an equity account (usually called owners equity) and enter the same amount, but in the credit column this time.
Make sure your totals in both columns match and then click save.

Zero Sum Expense

On the left hand side menu, go to create and select expense under vendors.
Select the payee and make the date match the date of purchase.
It doesn't matter which payment account you select because this expense will total zero when you're done. If you don't want to clog up your business account with zero sum expenses, you can always create a dummy account. Just make sure the balance of that dummy account stays at zero.
For the first line, select which account the purchase falls under (gas, insurance, supplies, etc.) and put the amount of the purchase in the amount column. Add a description if you'd like.
For the second line, select an equity account (usually called owners equity) and enter the same amount, but as a negative this time.
Make sure the total of the expense is zero and then click save.

That's it! Ideally you won't need to do this often, but it's helpful to know what to do when that situation does come up. Every dollar spent on your business should be in your Quickbooks account to maximize your tax savings, so it's worth the effort to get those recorded cleanly.